Share market investing is one of the most lucrative filed where you can get good returns, but then it also means making all the right decisions at the right time, especially when choosing what shares to buy and when to exit. This is something that will need to do some research and analysis. When you are keen on keeping an eye on the economy and the market in general, your potential to grow wealth over time through shares is very promising.

Before anything else, it would be very essential for you to start by educating yourself about how the market works, economic changes and how they will impact earnings. To get started, we have compiled basic 42 questions to make you understand the basics.

Share Market Investing

1. Where do I go for buying/selling of shares?

To buy or sell securities you could approach either SEBI registered trading member of the NSE or SEBI registered sub-broker of a trading member of the NSE.

2. What care should I take while investing?

Before making any investment, you must ensure that you:

  1. Obtain written documents explaining the investment,
  2. Read and understand such documents,
  3. Verify the legitimacy of the investment,
  4. Find out the costs and benefits associated with the investment,
  5. Assess risk- return profile of the investment,
  6. Know the liquidity and safety aspects of the investment,
  7. Ascertain if it is appropriate for your specific goals,
  8. Compare these details with other investment opportunities available,
  9. Examine if it fits with other investments you are considering or you have already made,
  10. Deal only through an authorised intermediary,
  11. Seek all clarifications about the intermediary and the investment,
  12. Explore the options available to you if some thing goes wrong and then if satisfied make the investment we call this the Twelve Steps to Investing.

3. Why should I trade on a stock Exchange?

Any trade in securities outside stock Exchanges other than spot transactions are illegal. Hence you do not get any protection if you trade outside an Exchange besides the stock Exchange like NSE offers a ready market for your securities. If you are trading outside an Exchange you have to waste considerable time to find out the right person who is willing to undertake a corresponding transaction with you. Other benefits of trading on an Exchange include you have the right to receive the best price prevailing at that time for the trade you do not take counterparts risk which is assumed by a clearing corporation you have access to the investor grievance redressal mechanism of stock Exchanges; you have protection upto a limit from the investor protection fund and you have access to all company related information to enable an informed Decision, etc.

4. Is it necessary to deal with a SEBI registered broker/sub-broker/NSE trading member?

Is it necessary to deal with a SEBI registered broker/sub-broker/NSE trading member? You are advised to deal only with registered intermediaries as it ensures speedy settlement as well as a speedy dispute resolution mechanism. The Exchange can ensure the settlement and handle disputes/claims arising out of only those trades which are executed on NSE through registered trading members/ or registered sub-brokers. Thus in case of any trade executed through a non-NSE entity, the investor may not be able to approach the investor grievance Cell of the Exchange in case of non-settlement or a dispute arising out of same.

5. How do I verify the authenticity and the conduct of the trading member/sub-broker?

How do I verify the authenticity and the conduct of the trading member/sub-broker? All the SEBI registered trading member/sub-broker get the SEBI registration certificate/number. You may ask the trading member to furnish the same document to verify the antecedents of the person. You may verify the authenticity and the validity of the registration with the Exchange or from the Exchange, website www.nseindia.com/content/members/mem_directory.htm. General reputation of a trading member/sub-broker can be known from the existing clients besides the Exchange issues press releases as and when it approves the surrender application of any trading member and also when it expels any trading member or Declares any trading member a defaulter.

6. What are my general rights and obligations ?

What are my general rights and obligations ? As an investor you have the right to receive all documents evidencing your investment if you are trading on NSE, you should get the best price at that point of time and receive money and sesurities in time. Your general obligations are to remain informed about the intermediary and securities you are dealing with/in, to pay/deliver funds/securities as and when called upon, to exercise all rights conferred on you and to remain vigilant

Registration as a Client

7. What are the formalaties for registration as a client for NSE trading member/registered sub-broker?

You (clients) should register yourself with registered trading member/sub-brokers.by:

  • Filling a client registration form
  • Signing a member-constituent agreement
  • Signing a sub-broker–client agreement, if dealing through a sub-broker
  • Obtaining acopy of the above agreement for ones’ own record

The member–constituent agreement/sub-broker client agreement contains the terms and conditions including order/trade confirmation, brokerage charged by a trading member/registered sub-broker, delivery of securities and funds and therefore helps reduce the chances of disputes. This agreement is mandatory for all persons registering as a new client of a NSE trading member/SEBI registered sub-broker. On registration with a trading member or a sub-broker, an uniform and unique client-id needs to be obtained which is required to be incorporated in all transactions on NSE.

8. What check points/precautions should one take before signing the member-constituent agreement/sub-brokers-client agreement?

What are my general rights and obligations ? As an investor you have the right to receive all documents evidencing your investment if you are trading on NSE, you should get the best price at that point of time and receive money and sesurities in time. Your general obligations are to remain informed about the intermediary and securities you are dealing with/in, to pay/deliver funds/securities as and when called upon, to exercise all rights conferred on you and to remain vigilant Registration as a Client

  1. One should read the various terms and condition carefully and understand their implications before entering into this agreement with the trading member/registered sub–broker.
  2. A check should be done whether the agreement is on the stamp paper of requisite value and whether and stamp paper is valid. Date of agreement should be within the validity period of the stamp paper.
  3. The clients name and the name of the trading member/sub-broker should be clearly mentioned in the agreement. All the pages of the agreement should be duly signed by the trading member as well as the client(investor). The witnesses should also put their names and addresses against their signature.
  4. The investor(client) should check whether the trading member/registered sub-broker or their representatives have the authority (such as board resolution, power of attorney etc.) to sign the member-constituent agreement/sub-broker-client agreement

Performance of Companies

9.How do I know of the performance of companies whose securities I want to trade in?

There are a number of sources where There are a number of sources where information about the company can be received. In terms of listing agreement, the companies are required to make continuous disclosures about the price sensitive information. These disclosures are disseminated through the websites of the Exchanges. Besides, SEBI provides EDIFAR (Electronic Data Information Filing and Retrieval System), which contains information about (i) financial statements comprising of balance sheets profit and loss account and full version of the annual report, half yearly financial statements, (ii) corporate governance reports (iii) shareholding pattern and (iv) action taken against the company by a regulatory body. Apart from the above the details of a company are also available with the various market participants and numerous public online sites. News magazines also carry out analysis of the companies periodically.

Trading Related Issues

Giving purchase/sale instructions

10. How do I give sale/purchase instructions to my trading member/registered sub-broker?

A trading member will have to be communicated the order instruction in writing. The order instructions should clearly indicate the security name whether the order is for buy or sell, the quantity for each of the security, rate specifications, and other relevant instructions. This reduces chances of miscommunication between the client (investor) and the trading member/registered sub-broker at the time of placing the deals on behalf of the client. You are advised to quote your uniform and unique client id, while communicating with the trading member or the sub-broker.

Price at Which Traded

11. What is price-time priority?

The system arranges all orders in the priority of price and within price by time. You have, let us say placed buy order for 100 shares of company A at Rs.285 and another investor has placed a buy order at Rs.290, then anyone who places a sell order in company A will be first matched with the buy order of second investor as he has given a better price. This is price priority. Let us say both of you have quoted Rs.285 as the price at which you want to buy shares of company A, then sell order which comes into the system at this price will be matched against the order which was placed first.

12. How do I know my TM has given me the best price?

The NSE trading system matches orders in such a way that the order gets executed at a price which is either equal to or better than the specified price but never worse than it. Therefore, if you have given an order for selling 100 shares at the rate of Rs.50, your order will be traded in the system in such a way that you will get a sale price of Rs.50 or more but never less. Similarly, if you have given an order for buying 100 shares at the rate of Rs.50, your order will be traded in the system in such a way that you will get a buy price of Rs.50 or less but never more.

13. How do I know that the broker has given me the correct price?

Regulations provide that the client receives a contract note indicating details like order number, trade number, time, price, brokerge, etc. within 24 hours of the trade. In case of any doubts about the details of the contract note, you (investor) can avail the facility provided by NSE, wherein you can verify the trades on NSE website www.nseindia.com. The Exchange generates and maintains an audit trail of orders/trades for a number of years.and you can counter check details of order/trade with the Exchange.

Contract Note

14.What is a contract note? What is the need for it? What is important in a contract note?

Contract Note is a confirmation of trades done on a particular day on behalf of the client. It establishes a legally enforceable relationship between the client and the trading member with respect to the settlement of the trades. It also helps to settle disputes/claim/differences in terms of the contract note. It is a prerequisite for filing a complaint or arbitration proceeding against the trading member/sub-broker in case of a dispute. A valid contract note should be in the prescribed form, contain the details of trades, stamped with requisite value and duly signed by the authorised signatory.

Contract notes are made in duplicate, the trading member and the client should keep one copy each. After verifying the details contained therein, the client keeps one copy and returns the second copy to the trading member duly acknowledged by him. Do not accept unsigned/duplicate contract note confirmation memo or contract not confirmation memo signed by any unauthorised person.

15.Will a contract note be issued even if the trade has been executed through a registered sub–broker?

In case of a deal executed through a registered sub-broker, the sub-broker is required to issue purchase/sale notes to the client(investor). However, the trading member would issue to the registered sub-broker back to back contract notes giving details of all transactions done by the sub-broker through the trading member’s terminal.

16.What if the details contained in the contract/purchase/sale notes are incorrect or the notes include some transaction not pertaining to my orders/trades?

Counter-check the details contained in the contract note/purchase/sale notes with those on the order and trade confirmation slip. Check whether the order number, trade number and other details on the trade confirmation slip match with those on contract/purchase/sale notes. In case of discrepancy, bring the same to the notice of the trading member/registered sub-broker immediately by way of written communication.

17.What are the points to be checked by an investor to check the validity of a contract note?

To ensure that the contract note issued to you by the trading member is a valid one, you must verify the following details:

  1. The contract note should be in the prescribed format (annexure).
  2. Name and address of the trading member.
  3. SEBI registration no. of the trading member.
  4. Details of trades like order no., trade no., trade time, security name, quantity, price, brokerage, client code, etc.
  5. The trade price should be separately shown from the brokerage charged.
  6. Signature of the authorized person.

Brokerage

18. What is the brokerage chargeable?

As stipulated by SEBI, the maximum brokerage chargeable by a trading member in respect of trades executed on the Exchange is fixed at 2.5% of the contract price. This maximum brokerage is inclusive of the brokerage charged by sub-broker which shall not exceed 1.5% of the contract price. Apart from the above, the trading member can charge statutory levies.

19.What documents should I receive from the trading member in respect of trade?

After the order/trade is placed/executed you (investor) should receive an order/trade confirmation slip from the trading member. Within 24 hour of the execution of the trade, you should also receive a contract note from the trading member. Receipts of all the monies paid to the brokers specifying the nature of payment should also be obtained from the trading member.

In case of derivatives obtain receipt for collateral deposited with Trading Member(TM) towards margin.

Clearing and Settlement related Issues

Rolling settlement

20. What is rolling settlement?

Under rolling settlement, all open positions at the end of the day mandatory result in payment/delivery ‘n’ days later. This ensures certainty of trades, reduces risk and delay in settlement and keeps excessive speculation under control. Currently trades in rolling settlement are settled on T+2 basis where T is the trade day. For example, a trade executed on Monday is mandatory settled by Wednesday (considering two working days from the trade day). The funds and securities pay-in and pay-out are carried out on T+2 day.
Pay-in and Pay-out of Securities and Funds

21. When and how do I pay/receives payment for the securities that I have bought/sold?

You should pay for your purchases within 24 hour of trade. It is advisable to make payment by way of account payee cheque/demand draft in the name of the trading member/sub–broker only. A proper receipt should be collected from the intermediary. You should receive payment for securities within 24 hours of Declaration of pay-out by the Stock Exchange.

22. When and how do I deliver and receive securities?

In case of a sale transaction, you should deliver securities within 24 hour of trade. For this, instructions should be given to the DP to transfer securities from your beneficiary account to the pool account of your trading member. In case of purchase, you should receive securities(in your beneficiary account with DP), within 24 hours of the securities pay-out of the Exchange. For this, instructions should be given to the DP to receive securities in your beneficiary account from the pool account of your trading member. Do not sign blank delivery instruction slip(s) while meeting securities payin obligation.

23. What are the margins payable on securities and transactions?

Exchange prescribes margin rules from time to time and such margining rules are posted on the website of the Exchange. Currently the Exchange calculates margins on the basis of Value at Risk principles as well as Mark to Market basis. The margins are charged on client level positions. The investors are advised to educate themselves about the margining principles.

24. Do I need to keep any deposit with the trading member/sub-broker?

The regulations do not mandate any such requirement. It depends on your understanding with the trading member/sub-broker. You are, however, required to pay upfront margin to the trading member before the trade is executed

Settlement Guarantee Fund

25. What is Settlement Guarantee Fund?

The clearing corporation(NSCCL) has set up the settlement guarantee fund (SGF) that is intended primarily to guarantee completion of settlement up to the normal pay-out for trades executed in the regular market and does not act as guarantee for company objection case. The SGF, therefore, ensures that the settlement is not delayed on account of failure of trading members to meet their obligations and all other trading members who have completed their part of the obligations are not affected in any manner whatsoever.

26. Is an investor affected, in case a counter trading member fails to pay-in funds as per his obligation?

No, the investor is not affected in case the counter trading member fails to meet his obligation since National Securities Clearing Corporation Limited (NSCCL) guarantees the net settlement obligations. The clearing corporation guarantees completion of settlement through SGF in case of any default by the trading member towards his obligation

Demat settlement

27. What is a depository?

A depository is like a bank wherein the deposits are securities (viz., shares, debentures, bonds, government securities, units etc.) in electronic form. Besides holding securities, a depository also provides services related to transaction in securities.

28. Who is Depository Participant?

Depository provides its services to investors through its agents called Depository Participants(DPs). These agents are appointed by the depository with the approval of SEBI. According to SEBI regulations, amongst others, three categories of entities i.e. Banks, Financial Institutions and Members of Stock Exchanges registered with SEBI(TMs) can become DPs.

29. What is dematerialisation?

Dematerialisation is the process by which physical certificates of an investor are converted to an equivalent number of securities in electronic form and credited in the investors account with his Depository Participant(DP).

30. What is the procedure for dematerialization?

In order to dematerialize certificates, you will have to first open an account with a DP and then request for the dematerialization of request form (DRF), which is available with DP and submitting the same along with the Physical certificates. Ensure that the Certificates are defaced by marking: “Surrendered for Dematerialisation” on the face of the certificate before the certificates are handed over to the DP.

31. Why should I hold securities in depository and is it compulsory for every investor to open a depository account to trade in the capital market?

Holding securities in depository enables immediate transfer of securities in case of purchases. The stamp duty to be paid on transfer of securities is not needed, all risks associated with physical certificates like fake securities, forgery, bad delivery etc. is not involved. Also, since more than 99% of the settlement at the stock Exchanges is taking place in the demat form, it is advisable that securities be held in demat form with in Depository Participant (DP).

32. How do I receive demat shares in my account towards my purchase transaction and pay-in demat shares towards my sale obligation?

For receiving demat securities in case of purchases made, you may give a one-time standing instruction to your Depository Participant. This standing instruction can be given at the time of account opening or later. Alternatively, you may choose to give a separate receipt instruction to your depository participant for receiving every credit. For pay-in obligations, you should instruct your DP to give ‘Delivery Out’ instructions to transfer the shares from your beneficiary account to the Pool/principal account of your trading member through whom you have sold the shares. The details of the pool/principal account of your Trading member/clearing member to which shares are to be transferred, security, quantity, etc. should be mentioned in the ‘Delivery Out’ instructions given by you to your DP.

The instructions should be given well before the prescribed securities pay-in day. SEBI has advised that the ‘Delivery Out’ instructions should be given at least 24 hours prior to the cut-off time for the prescribed securities pay-in to avoid any rejection of instructions due to data entry errors, networks problems etc.

Auction of Shares

33. What is an auction?

On account of non-delivery of securities, by the trading member, the securities are put up for auction by the Exchange. This ensures that the buying trading member receives the securities on time. Non-delivery by the selling trading member can arise on account of short delivery and bad deliveries not rectified. The Exchange purchases the requisite quantity in auction market and gives them to the buying trading member.

34. Can I avail the benefit of the auction mechanism, if I have shares to deliver?

Yes, you can direct your trading member to sell your securities in the auction. However, you should ensure that the securities are readily available for delivery. Securities not delivered on auction pay-in day are directly squared off at a price specified by the Exchange/Clearing Corporation.

35. What happens if the shares are not bought in the auction?

If the shares are not bought in the auction, the transactions are squared up as per SEBI guidelines.

Redressal of Complaints

Complaints to be addressed to

36. Whom should I approach if i have a grievance against a sub-broker/company?

You should bring it to the notice of the broker with whom the sub-broker is affiliated. In case the sub-broker/broker fails to resolve the dispute and in case of complaints against a broker/company, you should take of the matter with Investor Grievance Cell of the Exchange. The Cell takes up complaints for redressal in respect of trades executed on the Exchange or trades pertaining to companies traded on the Exchange. You should lodge the complaints in the prescribed form with all associated documents such as contract notes, purchase/sale notes, bills, statement of accounts and the member-client agreement.

37. Who should I approach for Redressal of my Complaints?

Despite all the precautionary measures taken by you and the Exchange, there might be some grievances. The Exchange tries to solve and sort out all the grievances, in addition to this you also have the freedom to take up the grievance with SEBI, Consumer forum and Court of law.

38. Whom should I address my complaint against a trading member/registered sub-broker or against company traded on NSE?

You should address the complaint to the Mumbai office or the Regional office of NSE based on the dealing office where the deals were executed as given below:

39. What complaints are taken up for redressal by the IGC?

The IGC takes up complaints for redressal in respect of:

  • Trades executed on the NSE through its NEAT terminal and routed through the NSE trading member or SEBI registered sub-broker of NSE trading member.
  • Trades pertaining to companies traded on the NSE.
  • The investors are therefore required to furnish relevant contract or purchase/sale notes for referring their case to the investor grievance Cell.

40. How do I lodge a complaint with the IGC? What documents do I need to enclose for the same?

You are requested to use the following forms for lodging complaints:
Investor Complaint Form – I (ICF-1) for lodging complaints against trading member/registered sub-brokers.

Investor Complaint Form – II(ICF-2) for complaints in respect of companies traded on NSE..

* The complaint forms are available at NSEIL website (www.nseindia.com/).

Following documents needs to be enclosed when lodging a complaint against trading members registered sub-broker:

* Copies of contract or purchase/sale notes
* Copies of member-client agreement/registered sub-broker client agreement
* Statement of accounts
* Certificate from you bankers giving details of the cheque/pay–order no., date, amount, encashment details etc. issued by you in favour of the trading member/registered sub-broker
* Transaction statement issued by your DP reflecting transfer of securities from your account to the trading member registered sub-broker
* Acknowledgement of securities delivered to the trading member in case of physical certificates
* Copies of previous correspondence with the trading member with regards to the dispute
* Other documents as listed on the reverse of ICF-I

Following documents needs to be enclosed when lodging a complaint against a company:

* Copies of contract or purchase/sale notes
* Copies of previous correspondence with the company/registrars
* Other documents as listed on reverse of ICF-II

41. What steps are taken by the IGC to ensure speedy redressal of the complaints by the trading member/registered sub –broker and companies?

Complaints against trading member/registered sub-broker.

Complaints received from the investor if accompanied by relevant documents as mentioned above are forwarded to the respective trading member/registered sub-broker asking them to provide their comments or for resolving the case. The trading members are expected to file their replies within 15 days.

In case of the trading member/registered sub-broker disputes the claim of the investor, the response of the trading member is forwarded to the investor. If required both the parties are called for a joint meeting. Most of the complaints are resolved in this manner. In cases where the disputes remain unresolved in IGC, the parties may refer the matter for arbitration if they so desire.

(Complaints against Companies)

Complaints received from the investors are forwarded to the respective Companies/Share Transfer Agents for necessary action at their end. In case no response is received from the Company/Share Transfer Agents within 21 days, a follow up by way of letters, telephone calls and personal meetings is undertaken to expedite their replies.

Investor Protection Fund

42. What protection is available from Investor Protection Fund?

The Exchange maintains an Investor Protection Fund to make good investor claims, which may arise out of non settlement of obligations by the trading member, who has been Declared a defaulter, in respect of trades executed on the Exchange. The maximum amount of claim payable from the fund is Rs.10 lakh in respect of trades on NSE.